Balance Sheet Example Template Format Analysis Explanation

Your balance sheet shows what your business owns (assets), what it owes (liabilities), and what money is left over for the owners (owner’s equity). According to Generally Accepted Accounting Principles (GAAP), current assets must be listed separately from liabilities. Likewise, current liabilities must be represented separately from long-term liabilities. Current asset accounts include cash, accounts receivable, inventory, and prepaid expenses, while long-term asset accounts include long-term investments, fixed assets, and intangible assets. The balance sheet (also known as the statement of financial position) reports a corporation’s assets, liabilities, and stockholders’ equity as of the final moment of an accounting period.

Machinery and equipment

This makes it easier to see the financial performance of a business as multiple years are on one page. These financial statements can only show the financial metrics of your company at a single moment in time. While this is very useful for analyzing current and past financial data, it’s not necessarily useful for predicting future company performance. By comparing your income statement to your balance sheet, you can measure how efficiently your business uses its total assets. For example, you can get an idea of how well your company can use its assets to generate revenue. This ratio is an indicator of a company’s ability to meet its current obligations.

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Balance sheet accounts are listed in a specific order depending on if they are assets or liabilities. Long-term Liabilities – Similar to current liabilities, but a long-term liability is a debt that is due more than one year out from the date being reviewed. The reason for dividing current and long-term assets is that these categories can be used to measure the liquidity of a company by turning assets into cash. Using debt (such as loans and bonds) to acquire more assets than would be possible by using only owners’ funds. In financial accounting this term refers to the amount of debt excluding interest. Payments on mortgage loans certificate of deposit accounting journal entry usually require monthly payments of principal and interest.

Fees earned from providing services and the amounts of merchandise sold. Under the accrual basis of accounting, revenues are recorded at the time of delivering the service or the merchandise, even if cash is not received at the time of delivery. Some valuable items that cannot be measured and expressed in dollars include the company’s outstanding reputation, its customer base, the value of successful consumer brands, and its management team. As a result these items are not reported among the assets appearing on the balance sheet. Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars.

Short-term loans payable

During times of inflation or deflation this decision affects both the cost of the inventory reported on the balance sheet and the cost of goods sold reported on the income statement. The current asset other receivables is the amount other than accounts receivable that a company has a right to receive. The operating cycle for a distributor of goods is the average time it takes for the distributor’s cash to return to its checking account after purchasing goods for sale. To illustrate, assume that a distributor spends $200,000 to deducting startup and expansion costs buy goods for its inventory. If it takes 3 months to sell the goods on credit and then another month to collect the receivables, the distributor’s operating cycle is 4 months.

• Beneath the assets are the liabilities followed by stockholders’ equity.
• Includes cash and highly liquid assets with a short term to maturity (usually 90 days).
• The example below shows a typical and useful format for management purposes.
• Also, standardize your process with templates, checklists, and practice management software like Financial Cents.
• Current assets are the assets that can be converted into cash within one year, including cash and cash equivalents, inventory, and accounts receivable.
• Current assets are the same as short-term assets and those are assets that are expected to be sold or turned into cash within one year.

The net of the asset and its related contra asset account is referred to as the asset’s book value or carrying value. The general guidelines and principles, standards and detailed rules, plus industry practices that exist for financial reporting. You can learn more about depreciation expense and accumulated depreciation by visiting our Depreciation Explanation.

Assets = Liabilities + Owner’s Equity

Start by listing all assets, separating them into current and non-current categories. Ensure valuations are accurate — cash and receivables are straightforward, but inventory and intangible assets may require careful valuation. Now that you cash flows from investing activities definition have an idea of how values are recorded in several accounts in a balance sheet, you can take a closer look with an example of how to read a balance sheet. In this article, we will discuss different scenarios to understand how values are reflected in the balance sheet accounts. If the shareholder’s equity is positive, then the company has enough assets to pay off its liabilities.

Sales

• If the corporation were to liquidate, the secured lenders would be paid first, followed by unsecured lenders, preferred stockholders (if any), and lastly the common stockholders.
• The statement of financial position or (SOFP) is just another name for the balance sheet.
• This is an owner’s equity account and as such you would expect a credit balance.
• It shows what belongs to the business owners and the book value of their investments (like common stock, preferred stock, or bonds).
• By comparing these numbers over time or with other companies, managers can figure out ways to make the company even better.
• Returning to our catering example, let’s say you haven’t yet paid the latest invoice from your tofu supplier.

A cloud-based solution that makes it easy for accounting firms to manage client work, collaborate with staff, and hit their deadlines. Current Portion of Long-Term Debt – Amount of principal that will be due within one year of the reporting date. Retained earnings – Earnings that are reinvested in the business after the deduction of any dividends. Accounts Receivable – Money owed by customers who purchased goods or services on credit that was provided by the company.

In this case, they are the liabilities that the company needs payback in the period more than one year from the balance sheet date, such as notes payable that the company owes to the bank. Non-current assets are those assets that are not classified in current assets. In this case, they are the assets that the company expects to use for longer than one year in the operation of the business. They include lands, buildings, equipment, vehicles, and long-term investments, etc. A horizontal balance sheet is a financial statement with additional columns to show changes in the amounts of assets, liabilities, and equity of a business over multiple years.

Other accrued expenses and liabilities

Because the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health. At a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Or you might compare current assets to current liabilities to make sure you’re able to meet upcoming payments. With this information, stakeholders can also understand the company’s prospects.

Liabilities – Debt

In other words, it is the amount that can be handed over to shareholders after the debts have been paid and the assets have been liquidated. Equity is one of the most common ways to represent the net value of the company. Part of shareholder’s equity is retained earnings, which is a fixed percentage of the shareholder’s equity that has to be paid as dividends.

When used with other financial statements and reports (such as your cash flow statement), it can be used to better understand the relationships between your accounts. Given the above information, the company’s December 31 balance sheet will report $1,500 as the current asset prepaid expenses. On February 28 prepaid expenses will report $900 (3 months of the insurance cost that is unexpired/still prepaid X $300 per month), and so on. However, some accounting rules do require some recorded costs to be reduced through a contra asset account. It is also possible that the reported amount of these and other long-term assets will be reduced when their book values (cost minus accumulated depreciation) have been impaired.

Liabilities Section

At that point, the depreciation of the constructed asset will begin. Their cost will be depreciated on the financial statements over their useful lives. We’ll do a quick, simple analysis of two balance sheets, so you can get a good idea of how to put financial ratios into play and measure your company’s performance.

For Where’s the Beef, let’s say you invested $2,500 to launch the business last year, and another $2,500 this year. You’ve also taken $9,000 out of the business to pay yourself and you’ve left some profit in the bank. Returning to our catering example, let’s say you haven’t yet paid the latest invoice from your tofu supplier. You also have a business loan, which isn’t due for another 18 months. Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions. Not sure where to start or which accounting service fits your needs?